India, the growth story of the century?

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​​​​13​​​​​​​​​​​​​​​​​​​​ Oct 2014

India, the growth story of the century?

After years of lacklustre growth and wasted potential India is turning a corner. New Prime Mi​​nister Narendra Modi promised to kickstart the economy and a raft of reforms already are yielding faster growth and new investment. But as JLL's Anuj Puri explains, excitement is tempered with caution at this critical junction for Asia's second biggest economy.

Since Narendra Modi's landslide election victory in May there has been no shortage of good news from India. GDP growth is accelerating, inflation is easing, the stock market is climbing to new highs, an Indian spacecraft is orbiting Mars. On the streets and in business meetings a new vibrancy is palpable, says JLL Chairman and India Country Head, Anuj Puri.

"The mood is extremely positive; there's a bounce in everybody's step. Modi has a full majority and a pack of educated ministers aligned to his ambitions. He has moved politics from being about caste and creed to the economy and it is already translating into growth."

New interest from foreign investors is reflected in Puri's schedule. "My diary is certainly much fuller" he says. "We're seeing new interest from Chinese and Japanese investors who have started to do the rounds. Large delegations are requesting meetings with us. They want to understand India in great depth, which previously wasn't the case."

A wave of new Foreign Direct Investment hitting Indian shores is critical to Modi's economic reform plan. His state trip to Japan in August and a visit from Chinese president Xi Jinping last month are reported to have secured billions of dollars of new investments over the next five years. In New York last month the Indian diaspora gave Modi a rockstar's reception with more than ten thousand expatriates gathering at Madisson Square Garden to hear him speak. He left the stage for a round of meetings with CEO's from America's biggest multinationals.

But Anuj Puri is measured in his excitement about Modi's potential, reporting scepticism in some quarters.

"The business community is aware that if Modi can't lift India's economic growth into super-sonic speed in the next two years then you might say we're doomed. And that's very unnerving.

"Old investors aren't coming back. Those players who were burned so badly in the past - when the rupee depreciated or government approval didn't materialise fast enough - are staying away.

"Scepticism also surrounds the bureaucrats who are ultimately responsible for writing the policy that will effect change. They've enjoyed power for fifty years now and their appetite for change hasn't been tested yet."

Early indicators provide reassurance. Recent government data shows increased exports and rising manufacturing output. With more than half of its 1.27 billion population under the age of 25, India needs to create 10 million new jobs annually to absorb new entrants to the jobs market.

To that end Modi has launched a "Make in India" campaign, urging foreign investors to view India as a manufacturing hub as well as a market of millions of potential new consumers. Puri says this new focus is boosting demand for industrial and corporate real estate, especially in banking and financial services, automobiles, pharmaceuticals and FMCG sectors.

"I'm confident a manufacturing revival can happen, India has considerable skilled labour available and can really deliver in sectors like automotive on an outsourcing basis.

"The only challenge is infrastructure. Roads, railways, ports, airports need upgrading to progress industrial activity in India. It features in every one of Modi's speeches and we know he's focused on accelerating Public Private Partnerships."

Residential real estate is yet to experience the same upward movement.

"We thought that as sentiment improved there would be an immediate increase in the take-up of luxury residential property and more liquidity in the sector" says Puri. "That hasn't happened, but the causes are structural, not political. Most developers were highly over leveraged and demand is for affordable housing, not the premium luxury products that are in over-supply."

The real estate landscape could look very different in two years' time if economist's predictions come to fruition that by 2016 India will overtake China as Asia's fastest growing economy. It will depend on whether PM Modi can turn promise into practice and increase the purchasing power of millions of Indians.

As Puri is keenly aware, the only certainty is that the stakes are high. "India is at an exciting but precariously balanced junction" he says. "If it goes pear-shaped there'll be a huge amount of negativity and huge challenges to match. But If Narendra Modi can steer the country in the right direction, India will be the growth story of the century."